One Queen, two luxury yachts, no cost to us - but Mr Heseltine said no

A privately financed scheme to replace the Royal Yacht Britannia was rejected out of hand by the Government in favour of its plan to spend pounds 60m of public money on a new vessel.

News of the private proposal, detailed to the Independent on Sunday, will reopen the controversy about the Government's intention to use taxpayers' money to build a new boat for the Queen.

Last summer, a consortium of leading businessmen from the travel and shipping industries approached the Cabinet Office with a proposal for not one but two new royal yachts.

Their idea was that while one of the boats sailed the Queen and the Royal Family round the world, the other would offer commercial cruises. The two vessels were to be identical and interchangeable. The one not required on royal duties or for flying the flag on trade missions was to be used for cruises.

The plan was that profits from the cruises would have offset the entire pounds 200m building costs and running charges of the two vessels. Any leftover profits would have gone towards a maritime foundation to develop the shipping industry. While some might feel that use of a commercial liner might be inappropriate for the monarch, the consortium stressed that it was a non-profit-making venture.

Instead of taking up the plan, which would have cost the taxpayer nothing, however, ministers pressed ahead with plans for a pounds 60m replacement from the public purse.

The private proposal, the brainchild of Peter Robins, former marketing director of Royal Viking Line, was presented to Michael Heseltine, the Deputy Prime Minister, last July. Mr Robins and his colleagues were accompanied by Mr Robins's local MP, Tim Smith, a former Tory minister.

Mr Heseltine was shown a model of the proposed yachts designed by the naval architect Andrew Winch. At 500ft, the vessels were almost 200ft longer than the existing Britannia.

Each vessel would sleep 250. Every cabin was to have a veranda and each boat would have had function rooms, swimming-pools and all the accoutrements of a top-of-the-range, modern luxury cruise liner.

In addition, to accommodate the needs of the Royal Family on tour, each boat was to contain the latest communications and security systems.

Mr Robins had earmarked the VSEL shipyard at Barrow-in-Furness in Cumbria for building the new boats. As well as creating 1,000 jobs at VSEL, which has reduced its workforce by 10,000 since 1981, the new vessels would have provided work for craftsmen around the country. Every item on them, Mr Robins promised, would be British-built.

Cruise prices were to compare favourably with the current cost of holidaying aboard the QEII, around pounds 600 per night.

Despite the promise of a bank loan, to be repaid once the cruises were under way, Mr Heseltine turned down the idea.

Instead, the Defence Secretary, Michael Portillo, announced that the taxpayer would foot the cost of building a new vessel - a smaller, less luxurious one than those envisaged by Mr Robins.

"Mr Heseltine listened courteously and that was it - we did not hear anything afterwards," Mr Robins said.

Mr Heseltine's lack of response, he went on, was especially irksome because the cost of the replacement as announced by Mr Portillo was unrealistic. His experience in the industry made him believe that the final cost of building the vessel would be pounds 100m. His own costings had put the bill for the yacht's use by the Queen and the Royal Family at pounds 9m a year, not the pounds 5m as claimed by the Government.

John Hutton, the Labour MP for Barrow, accused ministers of engaging in "a stunt" at the expense of jobs in the town. "This is the most prestigious shipbuilding contract in the world at the moment and would be a marvellous opportunity for VSEL to advertise its skills on the international stage, but solely in order to try and embarrass Labour in the run-up to the general election the Government has pulled this stunt."

A spokesman for Mr Heseltine said Mr Robins's proposals "were presented to the Deputy Prime Minister in July, and duly noted. The Government later deliberated and made its decision".